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Accounting Treatment related to Severance Pay Liability as at March 31, 2008

Context and Application:  In line with the Treasury Board Accounting Standard 1.2 (TBAS 1.2), Departments are reminded that they must account for their allowance and related severance pay liability in their 2007-08 financial statements. This applies to all organizations defined as departments in accordance with section 2 of the Financial Administration Act (FAA).

Calculation: The 31 March 2008 liability relating to Public Service employees is determined by multiplying a ratio of 23.27% (compared to 23.64% at March 31, 2007) to the department’s annual gross payroll at year-end subject to severance pay, which is the payroll related to indeterminate employees. The 2007-08 annual expense for severance pay is determined by the difference between your opening and closing liability added to (or subtracted from) the actual severance expenditure for the year.

Process:  The following accounting entry should be recorded in CFMRS:

March 31, 2008 year-end entry (assuming an increase in the liability):
  Amount FRA Auth Obj

(1)  51846 – Provision for severance benefits – Public Service

(2) F124 – Allowances set up for severance pay

(3) 3469 – Charges to other liability accounts

(4)  21415 –  Allowance for severance benefits - departments

(5) F413  – Charges to accruals for severance pay

(6) 7023 – Allowance for employee benefits

DR Provision for Severance Benefits - PS $XXX 51846(1) F124(2) 3469(3)
CR Allowance for Severance Benefits $XXX 21415(4) F413(5) 7023(6)

Departments are reminded that the coding for actual severance benefits payable, at the end of year, remains unchanged.  The accounting entries are described in the FIS Accounting Manual.

Financial Statements Presentation:  The presentation in departmental financial statements of the severance benefits and the related liability should be in line with the TBAS 1.2.

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